On and Off the Web

On page 47 it urges shoppers to give a box of 10 perfume samples as a gift and the recipient will also get a $50 gift certificate to be redeemed at one of the cosmetics retailer's storefront locations. That's a great way to improve the chances of recipients getting exactly what they want. But it's also a good deal for Sephora.

When the recipient takes the certificate to a Sephora store, the sales clerk will tempt her with a Sephora Beauty Insider Card. The card offers repeat customers first dibs on limited edition items, new product samples for every $100 spent, a gift on their birthday and invitations to exclusive in-store events. To sweeten the deal, in exchange for the recipient's e-mail address, Sephora will include a pricey sample or two.

Within a few days, the person will start receiving exclusive Beauty Insider offers via e-mail to be redeemed either at a Sephora store or on its Web site. She will also be encouraged to enter online sweepstakes to win hundreds of dollars' worth of products in exchange for her street address. Soon after, a Sephora catalog will arrive in the mail, full of new products.

This multichannel marketing blitz is part of the reason the 24-year-old chain continues to enjoy double-digit sales growth. During the first nine months of 2007, Sephora's parent, Paris-based luxury goods retailer LVMH, which also operates the DFS chain in the U.S., saw revenues in its retail division here grow 18 percent. During the same period, LVMH opened 24 Sephora stores stateside, bringing the chain's total U.S. locations to 91. Meanwhile, Sephora ranked as number 106 on the Internet Retailer's Top 500 Guide, based on Internet sales, revenue growth rate, monthly Web traffic, average conversion rate and a list of Web features and functions.

Sephora's multichannel approach to marketing demonstrates the sea change in retailers' thinking from the start of this decade, when brick-and-mortar chains saw the Internet as the single greatest threat to their business. Back then, many strategists predicted that the convenience of shopping from home and the expanding range of products available online would make storefronts obsolete. Instead, in many cases, the Internet has driven increases in store traffic, rather than rerouting it.

After annual growth of 25 percent to 35 percent in online sales prior to 2006, Internet sales in the United States will start decelerating this year to 11 percent through 2011, according to the Aberdeen Group, a Boston-based technology research firm. And with a total of $210 billion in 2006, online sales still represent just 5.25 percent of all U.S. retail sales, reports JupiterResearch, a division of Jupiter Kagan, Inc., a New York-based research and analysis firm. Ultimately, online sales will plateau at 15 percent of all retail transactions over the next five years, the firm predicts.

The reason is that while people may have no reservations about buying books, electronics and kitchen appliances over the Internet, they opt to see furniture, feel how clothes fit and try on shoes for size.

In addition, researchers say that many balk at having to pay for shipping and handling costs and waiting longer to enjoy new products. But while Americans buy only a fraction of their purchases on the Internet, a rapidly growing majority of shoppers use it to research off-line options.

JupiterResearch estimates that online activity — ranging from looking up a store's address to redeeming a gift certificate — influences approximately 36 percent of off-line sales. That number is expected to grow at a rate of 12 percent a year through 2014, eventually accounting for $1 trillion in purchases.

Retailers confirm experiencing significant cross-channel shopping among their customers. J.C. Penney Corp., for example, found that 80 percent of people who visited its JCP.com Web site also made purchases at its brick-and-mortar stores, and 30 percent of online visitors shopped the chain's catalog.

Moreover, when JCPenney customers visited a brick-and-mortar store to return a Web purchase, they bought additional items, even if they hadn't planned to do more shopping, said a company spokesperson.

“What we've seen over the years, with retailers like Wal-Mart, and Sears and Best Buy, is that over 30 percent of the time with online-influenced trips, people will buy additional products,” says Patti Freeman Evans, senior analyst for retail at JupiterResearch. “It is critical for multichannel retailers to make an effort to make sure they are promoting their locations as much as possible.”

In the December 2005 study “The Multi-Channel Retail Benchmark Report,” the Aberdeen Group found 64 percent of best-in-class retailers — those experiencing same-store sales growth of more than 3 percent annually — used their Web site, catalog and stores to direct customer traffic. More than 50 percent of retailers surveyed found multichannel marketing more profitable than the single-channel approach.

Web site and catalog businesses help generate added sales for retailers and offer them ongoing recruitment opportunities for new shoppers who may be far from a brick-and-mortar store by giving them access to the brand off-line. They also allow consumers to research items online, check availability of an item at the nearest store and/or take advantage of the ship-to-store option, saving time and delivery costs for both the retailer and the customer.

Cross-pollination

For retailers, the cost savings associated with ship-to-store practices encompass both labor and inventory. No longer is a sales associate required to locate items or complete an order form for a customer. With the ship-to-store feature, retailers no longer need to stock slow-moving merchandise, reserving the coveted floor space for high-volume items, cites a recent study, “Integrating Brick and Mortar Locations with E-Commerce,” by Charles Steinfield and Ying-ju Lai, of Michigan State University, and Thomas Adelaar, of the Telematic Instituut based in the Netherlands.

The authors found many Internet-only retailers could benefit from establishing a physical beachhead. (See “From Clicks to Bricks” in the January 2007 Retail Traffic.)

That's an approach Bath & Body Works started employing a year ago. The skin care and beauty products retailer offered customers a free tube of lip gloss in exchange for their e-mail addresses. Once the customers provided their addresses, Bath & Body Works sent them a certificate for the free gloss that could only be redeemed in person at an actual store.

Bath & Body Works' parent, the Limited Brands, declined to comment for this article, but in the August 14 issue of Direct, a sister publication, the company reported that customers coming into stores to get their lip gloss samples purchased approximately $25 of additional products during their visit.

By August, Bath & Body Works had collected more than 10 million e-mail addresses and improved its brand conversion rate to 65 percent from 30 percent, presumably because of customers' contact with the in-store staff.

Other retailers are investing in multi-channel marketing as well. In 2006, for example, JCPenney equipped all its registers with access to its Web site, so customers who were unable to find an item in-store could ask sales associates to submit their orders online. The chain also started posting weekly sales promotions on its Web site and also updating the availability of specific products at JCPenney stores on an hour-by-hour basis.

JCPenney wouldn't disclose what impact its multichannel marketing efforts had on its bottom line last year, but a spokesperson said it plans to intensify the campaign in 2008.

Meanwhile, OfficeMax renewed its Elf Yourself campaign this past holiday season, which allowed visitors to its ElfYourself.com Web site to attach their self portraits to dancing elves and send them to relatives and friends, complemented with a voice message.

In 2006, the site drew 35 million visitors, exposing them to the OfficeMax brand. In 2007, with the campaign gaining notoriety on social networking sites like Flickr, Facebook and Digg, the number rose to more than 65 million.

And let's not forget Sephora. In September of 2007, to appeal to teens under 13 years of age, a demographic not eligible for its Beauty Insider program because they are considered too young to make their own purchases, the retailer set up shop in a virtual mall at Stardoll.com, a social networking site for girls ages 9 through 17. There, make-up crazed teens can sample products on their virtual selves and use virtual currency purchased with their parents' credit cards to pay for the real deal.

Stardoll.com boasts more than 10 million users worldwide, many of whom Sephora aims to turn into loyal customers.